Worker Unrest at Tesla’s Gigafactory

Tesla’s 10-million-square-foot, $5-billion lithium battery “gigafactory” in Nevada is the key to plans for a cheaper electric car, but with construction now well under way, the first challenges have reared up in the form of worker protests.

The immediate issue is the use of out-of-state labor by third-party contractor Brycon Corp. of New Mexico. The broader issue is the incentives package the state of Nevada gave Tesla to build the gigafactory near Reno.

In 2014, Nevada passed an incentives package, SB1, that would allow Tesla $1.4 billion in tax breaks and free land, among other things, in return for ensuring that half of the 3,000-strong labor force required to build the gigafactory came from Nevada.

Local union leader Todd Koch told Fortune magazine that this first walk-off is a sign of bigger things to come, and he takes issue with the alleged displacement of Nevada workers by contract workers from out of state.

Koch, who is President of the Building and Construction Trades Council of Northern Nevada, says both union and non-union workers are concerned they may be replaced as well, despite the incentives agreement between Tesla and the state. Related: Oil Up On Positive Comments From Saudis

He’s also promising that they won’t give up easily, though they’ve made no decision on a next move, including whether they were going to show up to work on Tuesday.

Tesla’s take on what’s happening is this:

"Today's activity stems from the local Carpenters Union protesting against one of the third party construction contractors that Tesla is using at the Gigafactory. Their issue is not with how Tesla treats its workers. Their issue is that of the many third party contractors that are involved in the construction of the Gigafactory, many are union but the one at issue is not. The union is also claiming that this contractor is somehow favoring out of state workers. In reality, more than 50 percent of the workers used by this contractor and more than 75 percent of the entire Gigafactory workforce are Nevada residents, demonstrating the project’s strong commitment to Nevada."

According to the Reno Gazette-Journal, jobs and investments are up, but have still come in under earlier projections as of the last quarter of 2015.

A report by the Governor’s Office of Economic Development noted that Tesla and Panasonic had created 272 permanent jobs at the factory during the fourth quarter, representing a quarterly payroll of $4.3 million, averaging out at about $63,000 in yearly wages per worker. Capital investment also great by some 60% in the fourth quarter, according to the report.

Projections made in 2014 had envisioned 700 permanent jobs created by the end of 2015 and a total quarterly payroll of $40 million.

As far as the state is concerned, Tesla is still on track in terms of meeting the tax incentives, even if it has come in under earlier projections.

Though the union has little ground on which to stand in taking on Tesla for now, it knows the gigafactory’s importance in the bigger picture. Once up and running at full capacity, the gigafactory hopes to reduce the cost of lithium-ion battery packs by more than 30 percent by the end of next year already, and this will be instrumental in getting Tesla’s electric car costs down.

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